Italian “Google tax” targets haven hide-outs

Italy will force Italian companies to buy web adverts from locally-registered companies as opposed to foreign firms potentially trying to avoid domestic taxes, in a new ruling already under fire for its potential illegality. The so-called “Google tax” aims to prevent locally operating sites from centralizing their European advertising business in tax havens like Ireland and Luxembourg, requiring them instead to do business with locally-registered companies, and was passed this week [pdf link; Italian] by the Italian Parliament.

Several large, international companies have been criticized in recent years for how they structure their European organizations, attempting to minimize their tax footprint. Google, Amazon, and Starbucks have all been highlighted for their efforts, which can cut billions off their annual tax bills by funneling revenues through subsidiaries in Ireland and Bermuda.

For instance, while Google shifted almost $12bn of European ad sales through its Bermuda subsidiary last year, Bloomberg reports, its Italian business reported just €1.8m ($2.5m) in income taxes in the same period.

However, while experts concede that there is an unresolved issue around local taxation on global corporations, they say Italy’s solution isn’t it, describing the tax system as fiscally lazy.

It’s also potentially illegal, lawyers are warning, since the European Union has rules that permit business across borders despite where companies are registered. Italy’s attempt to force ad purchases through a domestic firm could well contravene those non-discrimination laws, and leave the government open to legal challenges.

Google has come under fire in a number of countries for its tax behaviors, with UK investigators particularly relentless in their efforts to figure out whether the search giant is misrepresenting profits. Particularly contentious are the exact roles each Google staff member in Europe carries out, with arguments about what Google says they do and what the business is taxed according to.